Price action
QQQ started the week quietly after the prior week’s drop out. Buyers stepped in at the 450 support zone both Monday and Tuesday. Wednesday started badly after the CPI release premarket and an apparent win for Harris in the Presidential election debate (after hours Tuesday). QQQ flushed -2% Wednesday morning, but buyers eagerly grabbed another chance at 450. Buy programs drove QQQ up +4%/+2ATRs to 470 in a straight line on high volume. QQQ held higher on Thursday and Friday, closing right on the confluence of 475 resistance and the trend line down from the July and August peaks. A triangle pattern is forming on the daily chart, suggesting a tightening contest between buyers and sellers. Note how well the 25pt levels continue to work (500-475-450-425).
The Fed
The Fed was in blackout ahead of next week’s Fed day. We noted in our last post to look out for a market steer from the Fed that would come via Nick Timiraos of the WSJ. We got it on Thursday:
In case the market didn’t get the message, we also got a steer from former NY Fed President Bill Dudley:
Why did we get these messages? The Fed does not like to cause volatility by surprising the market and the market was not giving enough weight to the likelihood of a 50bp cut. So, they sent back-channel messages to even things up. It worked: by the end of the week the market-implied probability of a 50bps cut had shifted from 30% to 50%. We may get further messages over the weekend or early next week. (Note - the Newsquawk calendar shows Logan scheduled to speak the day before the Fed announcement, which is highly unusual in the blackout period. Maybe nothing, maybe significant.)
Breadth
Breadth improved this week with the bounce, but no clear signals at the moment. % stocks above 40% and the McClellan Summation Index are both chopping about with the market.
Sentiment
Sentiment continues to ease back from bullish levels. The surveys are not yet at a bearish extreme that provide a contrarian bullish signal.
NAAIM: sideways, meh
AAII: Bulls -5pts to 40, Bears +6pts to 31, deterioration
GS positioning: investors lightening up ahead of the Fed day, the election, and seasonal weakness (source: Goldman Sachs, themarketear.com)
Seasonality
Here is your weekly reminder that September is an unfriendly month, especially the second half. This graphic comes from the excellent Ryan Detrick:
Summary
Price action: buyers stepped in aggressively at 450, but QQQ is back at resistance at 475. The primary trend remains bullish, but daily price action has become loose and “toppy”.
The Fed: back-channel guidance suggest a 50bps cut is possible/likely at next week’s Fed day.
Breadth: no signal.
Sentiment: easing off, but not extreme bearish/contrarian bullish yet.
Seasonality: headwinds from here to the election on Tue 5 Nov, especially the second half of Sep.
Key events next week: Wed18 Sep - FOMC interest rate decision and press conference.
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